In early January 2025, Governor Hochul announced a proposal to increase the Empire State Child Credit (ESCC) as part of her 2025 State of the State, which subsequently was included in the proposed executive budget. Currently, the ESCC provides families up to $330 per child, depending on total household income, in the form of a refundable tax credit. The proposed changes will increase the maximum annual credit to $1,000 for each child under the age of four and up to $500 per child ages four through sixteen. The program will also be means-tested: as families earn more income, they receive a lower tax credit until it phases out entirely for higher-income families. The governor’s office estimates that the ESCC expansion will increase payments to 1.6 million households and 2.75 million children. The ESCC is also fully refundable, which means that very low-income families without a tax burden will receive a refund payment in the full amount of the credit.

This proposal is the result of the recommendations from the Child Poverty Reduction Advisory Council (CPRAC), which was established in 2021 by the Child Poverty Reduction Act. CPRAC’s goal is to reduce child poverty by 50 percent over 10 years. Recent reports by advocates, academic researchers, and the New York State Comptroller’s office have highlighted the rise in poverty in New York State and New York City (NYC), especially among children. Current estimates place 26 percent of NYC children in poverty, as defined by an inability to afford basic needs including food, shelter, utilities (e.g., telephone, internet), and clothing. The Comptroller’s 2024 report found similar results for New York State: with 18.8 percent of New York children living in poverty and 8.7 percent of children living in “deep poverty,” meaning they live in a household earning less than 50 percent of the federal poverty line (FPL). The report showed that child poverty rates are highest in Syracuse (46 percent), Rochester (42 percent), Buffalo (40 percent), and the Bronx (35 percent).

Refundable tax credits, including Child Tax Credits (CTCs) and the Earned Income Tax Credit (EITC) outlined below, at both the state and federal level, have been favored levers to pull families with children above the poverty line by providing direct payments to low-income families whose tax burden is less than the credit amount. In 2021, the Rockefeller Institute published an analysis of the temporary expansion of the Federal Child Tax Credit included as part of the American Rescue Plan Act (ARP Act) of 2021. Although this expansion only lasted a single year, it provided three additional benefits to lower- and middle-income families by increasing the maximum amount of the CTC, making the CTC fully refundable, and paying half of the credit in estimated monthly payments throughout the year rather than as a single lump sum. The proposed ESCC expansion in New York would provide two of those three benefits to New Yorkers: increased payments and full refundability for low-income families.

The Federal Earned Income Tax Credit

The EITC is a fully refundable tax credit aimed at providing income support to low-income working families. The EITC was originally signed into law as a temporary measure as part of the Tax Reduction Act of 1975 and was renewed and minorly expanded throughout the 1970s and 1980s. The EITC as we know it today resulted from a significant expansion in 1993, with both an increase in the maximum amount of the per-child credit as well as the income thresholds eligible to receive the credit. As of 2024, a single person with no children was eligible for a maximum credit of $632 with an adjusted gross income (AGI) of less than $10,330 and a gradually decreasing credit with an AGI of less than $18,591. A married couple with two children could earn a credit up to $6,960 with an AGI of less than $29,640 and a gradually decreasing credit up to an income of $62,688.

The EITC has both a phase-in and phase-out structure. At very low levels of earned income, the EITC increases as households earn more income. Then, at higher levels of income, the credit eventually phases out. A single filer with no children needs to earn at least $8,261 AGI to be eligible for the full EITC credit and joint filers with two children need to earn at least $17,400 AGI for the full credit. The credit phases in at a higher rate for filers with children. Single filers receive a credit of 7.65 percent of their AGI until the maximum credit is reached, whereas filers with children get a credit of 34 percent (one child) to 45 percent (three or more children) until their maximum credits are reached. The EITC begins to phase in for all filers at $0 AGI.

SOURCE: IRS and author’s calculations.

As part of the American Rescue Plan Act of 2021, the EITC was temporarily expanded for households that did not have qualifying children. These could either be low-income households with no children, households that did not have custody of their children for six months of the tax year, or households with children that were not biologically related or otherwise qualified for the EITC even if they were in the household’s care. The legislation increased the phase-in rate from 7.65 percent to 15.3 percent, increased the maximum credit from $543 to $1,502, and increased the phase-out level of income from $8,880 to $11,610 for single filers and from $14,820 to $17,550 for married filers. This measure was, however, temporary and only available for tax year 2021.

The Federal Child Tax Credit

Sixteen states and the federal government provide some form of child tax credit. Families who meet income requirements receive a credit for their taxes based on that income and the number (and sometimes age) of children in the household. The federal CTC was established in 1997 as part of the bipartisan Taxpayer Relief Act. Since its establishment, the maximum CTC amount has increased substantially, from originally paying up to $400 ($799 adjusted for inflation) per child under the age of 17 to $1,000 per child, and further increasing to $2,000 per child in 2017 as part of a temporary measure in the Tax Cuts and Jobs Act of 2017. This latter expansion (from $1,000 to $2,000 per child) was temporary and is set to expire on December 31, 2025.

The federal CTC’s refundability has also changed over time. A standard tax credit, including the original 1997 CTC, is nonrefundable. If a family has two children and qualifies for $800 of CTC, they will only receive credit for $800 if the amount of taxes owed is above the value of the credit. For a refundable tax credit, like the Earned Income Tax Credit (EITC), if a family owes $500 in taxes they would receive a refund (payment) of $300. In 2001, the CTC became partially refundable, with the refundable portion called the additional child tax credit. The same Tax Cuts and Jobs Act of 2017 that expanded the maximum credit from $1,000 to $2,000 also limited the refundable portion to $1,400 and introduced a phase-out structure for higher earners.

Like the EITC, the federal CTC was temporarily expanded as part of the American Rescue Plan Act of 2021. This expansion increased the total value of the tax credit from $2,000 per child to $3,000 per child ages six and older and $3,600 for children younger than six. In July 2021, families received monthly payments of up to $250 for each child from age six to 17 and $300 for each child under six. These monthly payments accounted for about half the value of the tax credit. This expansion was only authorized for a single year as a permanent expansion was not approved by congress. Without further congressional action, the maximum federal CTC will again revert from $2,000 to $1,000 per child at the end of 2025.

State Earned Income Tax Credits

New York is one of 29 states that provide an additional EITC above the federal maximum payment. Washington, DC, and New York City also provide additional EITC payments (NYC’s payment is in addition to New York State’s). All state-level EITCs base their eligibility on the federal requirements and then provide an additional percentage of the federal calculation. In New York State, eligible recipients receive an additional 30 percent of the federal credit and New York City residents receive 35 percent. Like the federal EITC, the New York State and NYC EITCs are fully refundable. Only five of the 29 states with a state EITC—Delaware, Hawaii, Ohio, South Carolina, and Virginia—do not make their credits refundable.

Additional state credits range from a low of 3 percent of the federal credit in Montana to a high of 50 percent of the credit in Maryland. The locations with the highest EITC multipliers include Maryland (50 percent), California (45 percent), South Carolina (41.67 percent), Minnesota (40 percent maximum based on income), Washington, DC (40 percent), and New York City (35 percent total at 30 percent state EITC and 5 percent city EITC). Although South Carolina has an apparently high EITC multiplier, as noted above their credit is nonrefundable, meaning the lowest income families will not receive the full credit.

Three states—Minnesota, Oregon, and Wisconsin—have a variable multiplier based on a household’s income, age of children, or number of children. Governor Hochul’s proposed expansion of the Empire State Child Credit (ESCC) would follow the lead of Oregon, which has a different multiplier based on the age of children in the household. In Oregon, families receive a 12 percent additional payment for children under three and a 9 percent additional payment for children three and older. New York’s proposed expansion would pay up to $1,000 per qualifying child under the age of three and $500 per qualifying child ages three to sixteen.

New York’s state EITC program (NY-EITC) was enacted in 1994 and significantly increased aid to low-income families. The program has been credited with reducing poverty and lowering the reliance on other social services and assistance, including SNAP (food stamps) and cash assistance through Temporary Assistance for Needy Families (TANF). One of the motivations for New York’s larger-than-average EITC payment is the high cost of living in the state. New York is currently ranked the fourth highest in cost of living. The high cost of living is compounded by the number of New Yorkers living below the FPL. In 2023, the Census Bureau estimated that 14.2 percent of New Yorkers lived below the FPL, compared to the national average of 12.5 percent.

The proposed expansion of the Empire State Child Credit (ESCC) is also likely to have many of the same positive effects as EITC expansions in the past, due to both the credit’s significant increase and the fact that it is a refundable tax credit just like the federal EITC and the NY-EITC.

State Child Tax Credits

State-level Child Tax Credits (CTCs) are generally more complicated than state EITCs because they often do not follow the same eligibility requirements as the federal CTC, nor do they pay out as a direct multiplier of the federal CTC. Overall, according to the National Conference of State Legislatures, there are 16 states that have a state-level CTC and 12 of those states have refundable credits. State-level CTCs are largely recent developments, with most enacted legislation dating from during or after the COVID-19 pandemic in March 2020; only Oklahoma established its CTC before 2017.

New York is one of only three states that currently base their CTC payment on a federal credit (CTC or EITC). New York’s Child Tax Credit, the Empire State Child Credit (ESCC), is currently equal to 33 percent of the federal CTC (as it was in 2017) or $100 multiplied by the number of eligible children in the household, whichever is greater. New York’s ESCC is also fully refundable just like the NY-EITC. New York’s maximum CTC is currently $330 per child. Oklahoma, in contrast, pays 5 percent of the federal CTC and is not refundable. While Illinois calculates its CTC based on its state EITC, and pays 20 percent of that state EITC, which is itself 18 percent of the federal EITC.

The proposed changes to the ESCC would remove New York’s reliance on the federal tax credit numbers to determine a state-level credit. This shift from a federal percentage to a specified amount would align New York with the credits in Arizona, California, Colorado, Idaho, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Utah, and Vermont. Other states have also enacted stricter income limits on their CTCs compared to the federal government. California’s and New Jersey’s CTCs, for example, only pay the maximum benefit to families under $30,000 AGI, although New Jersey has a phase-out system with lower payments for higher earners. Additionally, three states—Utah, Oregon, and Vermont—only have a CTC for very young children, each of which pays a $1,000 yearly credit for each child under the age of five.

The proposed credit would cover $1,000 per child under the age of four and $500 per child from age four to sixteen. Under the plan, joint filers would receive the full credit up to $110,000 AGI and the credit would phase out at a rate of 1.65 percent or $16.50 per $1,000 of additional income. Joint filers with two children (one in the younger and one in the older age range) earning at or below $110,000 AGI would receive a total credit of $1,500, whereas the same family with a higher AGI would receive less. At $150,000 AGI, the credit would be $840, and at $180,000 AGI, $345 before phasing out entirely around $200,000 AGI. This income threshold is lower than that of the federal CTC, where single filers earning up to $200,000 and joint filers earning up to $400,000 are eligible to claim the full federal CTC of $2,000 per child ($1,000 beginning in 2026) and higher income earners may be eligible for partial credits.

In 2022, the ESCC was temporarily expanded and households that had received an ESCC payment of $100 or above received additional payments in August 2024 based on their 2023 tax year filings. Lower-income households received higher additional ESCC payments, with the largest payments (100 percent of their 2023 tax year ESCC) going to households with less than $10,000 AGI and the lowest additional payment of 25 percent going to households with $50,000 or above AGI.

Tax Year 2023 Additional Empire State Child Credit Payments
2023 Adjusted Gross Income	Percent of Original Credit as Additional Payment	Maximum Total Payment Per Child
$0 – $10,000	100 percent	$660
$10,000 – $25,000	75 percent	$578
$25,000 – $50,000	50 percent	$495
$50,000 +	25 percent	$413

SOURCE: New York State Department of Taxation and Finance and author’s calculations.

An eligible median-income household and above ($84,000 AGI) received an additional $83 per child during the temporary 2023 expansion and lower-income families received between $165 and $330 more per child. The proposed ESCC would increase the maximum per-child payment by $670 for children under the age of four and $170 for children between four and sixteen.

The Short- and Long-Term Benefits of Refundable Tax Credits

Evidence from the EITC

In the Rockefeller Institute’s 2021 discussion of the American Rescue Plan’s expansion of the Child Tax Credit, we dove into the extensive research literature on the effects of the EITC and why that expansion of the federal Child Tax Credit should have similar positive impacts. The proposed expansion of the Empire State Child Credit (ESCC) is also likely to have many of the same positive effects as EITC expansions in the past, due to both the credit’s significant increase and the fact that it is a refundable tax credit just like the federal EITC and the NY-EITC.

Both the EITC and CTC have been expanded and amended over the years at the federal and state levels. This makes it possible for researchers to study the causal effect of tax credit expansions on a number of short- and long-term outcomes. Additional studies on the EITC have shown positive impacts for children whose families receive it by improving prenatal outcomes through reducing incidents of low birth weight, increasing education attainment and adult earnings, improving children’s home lives and safety, decreasing food insecurity, and raising test scores.

The EITC also appears to have had positive impacts on parents. Mothers who receive the EITC have better self-reported mental and physical health and biomarkers of poor health and stress also declined. Employment and total earnings also increased for single mothers after the EITC expansion. The payment structure of the EITC (a single refund per year) also helps function as a “forced savings” mechanism for families. Rather than paying less in taxes each month or receiving a monthly rebate, families receive the entire yearly value of their credit after filing taxes. Essentially, money that could have been paid out each paycheck is “saved” through tax withholding and paid out in a lump sum of those savings. A lump sum EITC payment nearly doubles a family’s income in the month received, which allows them to purchase big-ticket investment items like cars, appliances, and computers.

The proposed expansion of the [tax credit] has the possibility to positively affect New York families and reduce child poverty in the state based on research on previous expansions of [EITCs] and [CTCs]…

Emerging Evidence from the American Rescue Plan’s Child Tax Credit Expansion

The ARP Act’s Child Tax Credit expansion was a single-year increase of the federal CTC in 2021 that increased the credit from $2,000 per child to $3,000 or $3,600 per child, depending on the child’s age. The expansion also added monthly estimated payments so that families did not get a single lump sum payment (or single reduction in tax burden), instead receiving monthly payments.

Several early studies have begun to assess the impact of that expansion on the well-being of children and families. The US Census Bureau produces a Supplemental Poverty Measure (SPM) each year. This measure accounts not only for households’ earned income but also for the taxes they pay and the benefits that they receive. Using this measure, researchers at Census estimate that the expanded child tax credit of 2021 lifted 2.1 million children out of poverty between 2020 and 2021.

A 2022 National Bureau of Economic Research working paper by researchers at the University of Michigan examined a national sample of very low-income families to determine if there was a significant effect of the monthly expanded CTC payments on economic well-being. They found that the CTC expansion led to a significant decline in material hardship and food insecurity as well as some evidence of reductions in medical hardship and the inability to pay utility bills. They also found that there was no significant decline in employment among families who received the credit with very low incomes. The finding of no effect on employment is consistent with other studies of the CTC expansion, as are the findings on a reduction in food insecurity. It is unclear whether the once-per-year payment of New York’s ESCC would have the same effect on monthly bills and expenditures.

Similar research presents suggestive evidence that the effects of the CTC expansion went beyond material hardship and improved mental health and stress levels. A study using the Census’s household pulse survey found that eligible families reported a reduction in anxiety and depression symptoms after the CTC expansion took effect but noted that the decrease in symptoms was not a result of increased use of mental healthcare.

Looking Forward

In light of changes in the federal tax structure for low-income families, including the nonrenewal of the federal child tax credit expansion and the sunsetting provisions of the Tax Cuts and Jobs Act of 2017 at the end of 2025, many low-income families are likely to find it even more difficult to afford basic necessities as cost of living and inflation also increase. As discussed above, about one in four children in New York City and nearly one in five children in New York State live in poverty with child poverty rates above 40 percent in some upstate cities. Although one of the states with the highest median household income in the country at $84,000 per year (ranking 16^th), New York also has a higher-than-average poverty rate at 14.2 percent (ranking 19^th) compared to the national rate of 12.5 percent.

The proposed expansion of the Empire State Child Credit (ESCC) has the possibility to positively affect New York families and reduce child poverty in the state based on research on previous expansions of earned income tax credits (EITCs) and child tax credits (CTCs) including the 2021 federal CTC expansion. The refundability and significant increase in payments are the factors that most influence that prediction. The one drawback of the current proposal is that the payment will only be once per year compared to the 2021 CTC’s expansion, which includes a monthly check. Although the forced savings mechanism of a once-per-year payment can help families save for investment purchases, including car and house down payments, families may still come up short each month in terms of utility bills, rent, and groceries, which could negate some of the expected impacts on food security.

The New York State Assembly and Senate have also included expansions of refundable tax credits in their one-house budget proposals. Although these proposals differ from the executive budget in both the maximum amount of the credit and who would be eligible, any increase in refundable credits should have a positive effect on child poverty and the standard of living based on previous research.

ABOUT THE AUTHOR

Leigh Wedenoja is chief economist at the Rockefeller Institute of Government